While the equity brokers across the country are busy recalibrating Sensex targets for the year, retail investors have a better option. They should start looking at equity funds seriously. Over long periods, equity funds have given better returns than any other asset class, including gold.
Many mutual fund investors are known to invest in tax-saving equity schemes at the end of the financial year, in lump sum. This, to some extent, has its own challenges, because if market valuations were higher, the investor would get lesser number of units or vice versa.
At 17,000 Sensex value, equity valuations are neither cheap nor expensive. Since sectors such as metals and oil, the price trajectories of which are linked to global demand-supply situations, comprise a significant portion of the Sensex, there is uncertainty as to where the index is headed. Most brokers have fixed their Sensex targets based on the higher earnings estimate of metal companies. But most mutual fund managers are underweight on these sectors. They are also increasing the mix towards mid-caps whose valuations look more attractive at this juncture. So, in effect, by investing in equity funds, you not only have to worry about the Sensex trajectory but can also ensure you beat the market.
Not all equity fund, though, have beaten market returns over a long period. Using the risk-adjusted returns of ValueResearch, we have cherry picked ten equity funds that have either four-star or a five-star ratings, which, in effect, means above-average relative performance.
We have also made an attempt to pick and choose schemes across fund houses as it is always prudent to diversify across fund houses. Usually, fund houses take a common call on equities and sectors. But by investing in four to-five fund houses, an investor can diversify the ?fund manager risk?.
HDFC Top 200, ICICI Pru Discovery, IDFC Premier Equity (Plan A), Fidelity Tax Advantage, DSP Top 100,Franklin India Bluechip, UTI Opportunities, Birla Dividend Yield plus, Reliance Growth and Templeton India Growth are the ones that made the cut. All these equity funds have beaten the Sensex by a huge margin. The Sensex gave a three-year CAGR return of 5.32% compared to 16% returns on an average for these equity funds.
As you might have noticed, there is a tax saver fund also among the ten funds. Investors, who do not seek the tax advantage can also look at the fund as it is no different from other equity diversified schemes, except that it has a three-year lock-in.
Investors should ideally start the SIP (systematic investment plan) method to invest. Most fund houses have this option of investing whereby investments are debited from your bank account every month on the date specified by you. In these volatile times, you end up making full use of it.
